Then Microsoft reinvented itself in the cloud computing business with Azure and hit a slow-motion home run. How Much Is Microsoft Expected To Grow?ġ0 years ago, it wasn't entirely clear where Microsoft was going to get growth from. Today, expectations have never been higher for MSFT's earnings growth, and the reason is that Microsoft is making an increasing amount of its income from cloud computing. MSFT used to make basically all of its money from Windows, Microsoft Office, and Xbox. In Microsoft's case, the rise in the P/E ratio does make some sense. The question that you should always ask as an investor when you see this is whether this makes sense. For what it's worth, Apple (NASDAQ: AAPL) saw a similar rise in valuation over the last 10 years. As time went on, however, the P/E trendline went from under 10x to 15x, then to 20x, then to 25x, and now after COVID, to over 30x earnings. Back in 2011, Wall Street hated Microsoft stock. If you look at the P/E ratio, you can pretty much draw a trendline from 2011 to 2021 and see that the market is willing to pay an increasing amount for each dollar of Microsoft's earnings. Microsoft's earnings trend is actually smoother than it looks because of some one-time tax charges, in 2018 for the repatriation tax, for example. MSFT Stock Price, Earnings, and ValuationĪs you can see here, Microsoft's earnings have been up and down a bit but mostly up over the past decade. This becomes apparent when you look at Microsoft's P/E ratio over time. Microsoft's earnings have grown steadily, but the share price has risen faster than earnings as investors have priced future growth into the stock. On the balance, I think that Microsoft stock is likely to be a good investment at current prices, but not a great one. After the run-up in the stock, the question now is whether the valuation makes sense and whether MSFT's future growth prospects offer enough compensation to forego other investment opportunities.
It doesn't take a genius to know that today's Microsoft runs a great business.
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Along the way, the stock has increased more than 10x plus dividends. Additionally, Microsoft makes steady money from their other lines of business, including Windows, Microsoft Office, and gaming. Microsoft ( NASDAQ: MSFT) transformed itself from a technological backwater in the 2000s to a cloud computing growth machine in the 2010s. Photo by wellesenterprises/iStock Editorial via Getty Images Is Microsoft Stock A Buy?
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